Gamenet Sells Debut Bonds as Borrowing Costs Diverge in Europe

Gamenet SpA, the Italian gambling
company controlled by Trilantic Capital Partners, sold debut
bonds as borrowing costs for European high-yield companies fell
to the lowest in more than seven weeks.

The average yield investors demand to hold speculative-grade bonds in euros fell to 4.75 percent, the lowest since June
4. The rate for investment-grade securities rose five basis
points yesterday to 2.03 percent, the highest since July 5,
Bloomberg index data show.

European Central Bank President Mario Draghi’s pledge to
keep interest rates low for an “extended period of time” is
encouraging investors to seek out high-yielding assets. About
$1.3 billion was placed in European junk credit funds in the
week to July 17, the most in almost three months, while $239
million was pulled from high-grade funds, the fifth week of
outflows, Bank of America Corp. reported on July 19.

“Investors need the returns and the low yield environment
is forcing them down the credit quality curve,” said Joseph Faith, a credit strategist at Citigroup Inc. in London. “There
are high-yield companies that need the funding. That gives you
more high-yield issuance yet without much pressure on pricing.”

Gamenet raised 200 million euros ($264 million) from five-year senior secured bonds yielding 7.25 percent, according to
data compiled by Bloomberg. The proceeds will be used to repay
debt and for general corporate purposes, according to a
statement on the company’s website.

Credit Ratings

Moody’s Investors Service assigned Gamenet a credit rating
of B1 on July 22, while Standard & Poor’s rated the company B+
the following day, both four levels below investment grade.

A spokeswoman for Gamenet in Milan, who wouldn’t be
identified citing company policy, declined to comment on the
bond sale. New York-based venture capital firm Trilantic took
control of the company in 2010.

Also in the new issue market, Royal Bank of Canada is
marketing 2 billion euros of seven-year covered bonds that will
yield 16 basis points more than the mid-swap rate, according to
a person familiar with the deal. It’s the first sale of the
securities in the currency from a Canadian borrower since 2008,
data compiled by Bloomberg show.

Credit Risk

The cost of insuring European corporate debt against losses
rose, with the Markit iTraxx Crossover index tied to 50
companies in Europe with speculative-grade ratings climbing 11
basis points to 416 at 4:30 p.m. in London, the highest since
July 17.

A basis point on a credit-default swap protecting 10
million euros of debt from default for five years is equivalent
to 1,000 euros a year. Swaps pay the buyer face value in
exchange for the underlying securities or the cash equivalent
should a borrower fail to adhere to its debt agreements.